Cyclophyllidean cestodes including Echinococcus granulosus have a smaller genome and show characteristics such as loss of the gut, a segmented body plan, and accelerated growth rate in hosts compared with other tissue-invading helminths. In an effort to address the molecular mechanism relevant to genome shrinkage, the evolutionary status of long-terminal-repeat (LTR) retrotransposons, which are known as the most potent genomic modulators, was investigated in the E. granulosus draft genome. A majority of the E. granulosus LTR retrotransposons were classified into a novel characteristic clade, named Saci-2, of the Ty3/gypsy family, while the remaining elements belonged to the CsRn1 clade of identical family. Their nucleotide sequences were heavily corrupted by frequent base substitutions and segmental losses. The ceased mobile activity of the major retrotransposons and the following intrinsic DNA loss in their inactive progenies might have contributed to decrease in genome size. Apart from the degenerate copies, a gag gene originating from a CsRn1-like element exhibited substantial evidences suggesting its domestication including a preserved coding profile and transcriptional activity, the presence of syntenic orthologues in cestodes, and selective pressure acting on the gene. To my knowledge, the endogenized gag gene is reported for the first time in invertebrates, though its biological function remains elusive.